TCA § 56-8-106 — Lending of money, extension of credit, or renewal — Conditions prohibited — Disclosures

No person or depository institution, or affiliate of a depository institution, shall require as a condition precedent to the lending of money or extension of credit, or any renewal thereof, that the person to whom the money or credit is extended or whose obligation a creditor is to acquire or finance, negotiate any policy or renewal of any policy through a particular insurer or group of insurers or agent or broker or group of agents or brokers. Further, no person or depository institution, or affiliate of a depository institution, shall reject an insurance policy solely because the policy has been issued or underwritten by a person who is not associated with the depository institution or affiliate when insurance is required in connection with a loan or extension of credit. However, nothing in this subsection (a) shall be construed as prohibiting engaging in an arrangement that would not violate § 106 of the Bank Holding Company Act Amendments of 1972 (12 U.S.C. § 1972), as interpreted by the board of governors of the federal reserve system, or § 5(q) of the Home Owners' Loan Act (12 U.S.C. § 1464(q)). No person or depository institution, or affiliate of a depository institution, who lends money or extends credit shall: As a condition for extending credit or offering any product or service that is equivalent to an extension of credit, require that a customer obtain insurance from a depository institution or an affiliate of a depository institution, or a particular insurer or producer; however, this subdivision (b)(1) does not prohibit a person or depository institution, or affiliate of a depository institution, from informing a customer or prospective customer that insurance is required in order to obtain a loan or credit, that loan or credit approval is contingent upon the procurement by the customer of acceptable insurance or that insurance is available from the person or depository institution or affiliate of a depository institution; Unreasonably reject a policy furnished by the customer or borrower for the protection of the property securing the credit or lien. A rejection shall not be deemed unreasonable if it is based on reasonable standards, uniformly applied, relating to the extent of coverage required and the financial soundness and the services of an insurer. The standards shall not discriminate against any particular type of insurer, nor shall the standards call for rejection of a policy because it contains coverage in addition to that required in the credit transaction; Require that any customer, borrower, mortgagor, purchaser, insurer, broker or insurance producer pay a separate charge in connection with the handling of any policy required as security for a loan on real estate, or pay a separate charge to substitute the policy of one (1) insurer for that of another. This subdivision (b)(3) does not include the interest that may be charged on premium loans or premium advancements in accordance with the terms of the loan or credit document. Further, this subdivision (b)(3) does not apply to charges that would be required when the person or depository institution or affiliate of a depository institution is the licensed producer providing the insurance; Require any procedures or conditions of duly licensed producers or insurers not customarily required of those producers or insurers affiliated or in any way connected with the person who lends money or extends credit; Use an advertisement or other insurance promotional material that would cause a reasonable person to mistakenly believe that the federal government or the state is responsible for the insurance sales activity of, or stands behind the credit of, the person, depository institution or its affiliate; Use an advertisement or other insurance promotional material that would cause a reasonable person to mistakenly believe that the federal government or the state guarantees any returns on insurance products or is a source of payment on any insurance obligation of or sold by the person, depository institution or its affiliate; Act as a producer unless properly licensed in accordance with § 56-6-103; Pay or receive any commission, brokerage fee or other compensation as a producer, unless the person holds a valid producer's license for the applicable class of insurance. However, in addition to any other manner of compensation otherwise allowed by law, an unlicensed person may make a referral to a licensed producer; provided, that the person does not discuss specific insurance policy terms and conditions. Except as prohibited by federal law, the unlicensed person may be compensated for the referral; however, an unlicensed person who is neither employed by nor affiliated with the insurance producer may be compensated only if the compensation is a fixed dollar amount, not to exceed twenty-five dollars ($25.00) or such lesser amount as the commissioner may establish by rule, for each referral. An unlicensed person who is either employed by or affiliated with the insurance producer may be compensated only if the compensation is a fixed nominal dollar amount. Furthermore, any person who accepts deposits from the public in an area where such transactions are routinely conducted in the depository institution may receive for each customer referral no more than a one-time, nominal fee of a fixed dollar amount for each referral. In any event, the referral compensation shall not depend on whether the referred customer purchases an insurance product from the licensed producer; Solicit or sell insurance, other than credit insurance or flood insurance, unless the solicitation or sale is completed through documents separate from any credit transactions; Include the expense of insurance premiums, other than credit insurance premiums or flood insurance premiums, in the primary credit transaction without the express written consent of the customer; Solicit or sell insurance unless its insurance sales activities are, to the extent practicable, physically separated from areas where retail deposits are routinely accepted by depository institutions; Solicit or sell insurance unless it maintains separate and distinct books and records relating to the insurance transactions, including all files relating to and reflecting consumer complaints; or Require, in connection with a loan or extension of credit secured by real property, that the debtor procure insurance for the protection of the property for an amount that exceeds the replacement cost of the structures existing on the secured property at the time of the loan or extension of credit or, in the case of a construction or improvement loan, insurance that exceeds the replacement value the structures are expected to have upon completion of the construction or improvements. Every person or depository institution, or affiliate of a depository institution that lends money or extends credit and who solicits insurance primarily for personal, family or household purposes shall disclose to the customer in writing that the insurance related to the credit extension may be purchased from an insurer or producer of the customer's choice, subject only to the lender's right to reject a given insurer or agent as provided in subdivision (b)(2). Further, the disclosure shall inform the customer that the customer's choice of insurer or producer will not affect the credit decision or credit terms in any way, except that the depository institution may impose reasonable requirements concerning the creditworthiness of the insurer and the scope of coverage chosen as provided in subdivision (b)(2). A depository institution that solicits, sells, advertises or offers insurance, and any person that solicits, sells, advertises or offers insurance on behalf of a depository institution or on the premises of a depository institution shall disclose to the customer in writing, where practicable and in a clear and conspicuous manner, prior to a sale, that the insurance: Is not a deposit; Is not insured by the federal deposit insurance corporation or any other federal government agency; Is not guaranteed by the depository institution, its affiliate, if applicable, or any person that is soliciting, selling, advertising or offering insurance, if applicable; and Where appropriate, involves investment risk, including the possible loss of value. For purposes of the requirements of subdivision (d)(1), an affiliate of a depository institution is subject to these requirements only to the extent that it sells, solicits, advertises, or offers insurance products or annuities at an office of a depository institution or on behalf of a depository institution. These requirements apply only when an individual purchases, applies to purchase, or is solicited to purchase insurance products or annuities primarily for personal, family or household purposes and only to the extent that the disclosure would be accurate. A depository institution that solicits, sells, advertises or offers insurance, and any person who solicits, sells, advertises or offers insurance on behalf of a depository institution or on the premises of a depository institution shall obtain written acknowledgement of the receipt of the disclosure from the customer at the time the customer receives the disclosure or at the time of the initial purchase of the insurance policy. If the solicitation is conducted by telephone, the person or depository institution shall obtain an oral acknowledgement of receipt of the disclosure, maintain sufficient documentation to show that the acknowledgement was given by the customer and make reasonable efforts to obtain a written acknowledgement from the customer. If a customer affirmatively consents to receiving the disclosures electronically and if the disclosures are provided in a format that the customer may retain or obtain later, the person or depository institution may provide the disclosure and obtain acknowledgement of the receipt of the disclosure from the customer using electronic media. For the purposes of subdivision (d)(1), a person is selling, soliciting, advertising or offering insurance on behalf of a depository institution, whether at an office of the depository institution or another location, if at least one (1) of the following applies: The person represents to the customer that the sale, solicitation, advertisement or offer of the insurance is by or on behalf of the depository institution; The depository institution refers a customer to the person who sells insurance and the depository institution has a contractual arrangement to receive commissions or fees derived from the sale of insurance resulting from the referral; or Documents evidencing the sale, solicitation, advertisement or offer of insurance identify or refer to the depository institution. The commissioner shall have the power to examine and investigate those insurance activities of any person, depository institution, affiliate of a depository institution or insurer that the commissioner believes may be in violation of this section. The person, depository institution, affiliate of a depository institution or insurer shall make its insurance books and records available to the commissioner and the commissioner's staff for inspection upon reasonable notice. Nothing in this section shall prevent a person or depository institution, or affiliate of a depository institution, who lends money or extends credit from placing insurance on real or personal property in the event the mortgagor, borrower or purchaser has failed to provide required insurance in accordance with the terms of the loan or credit document.